Highlights and Lowlights from October's Jobs Report

The economy added 171,000 jobs last month, and the previous two months were revised higher by a combined 84,000 jobs. This was better than nearly any analyst expected, supporting the view that the economy is in a slow recovery. 2012 is shaping up to be the best year for jobs growth since 2005 and the fourth-best since 2000.

That's the good news.

The bad news is that the hole left by the financial crisis makes decent employment numbers woefully inadequate. Assuming jobs growth continues at the current pace, it will be almost 2016 before we see a 6% unemployment rate. If we get lucky and jobs growth jumps to 200,000 a month, unemployment won't drop below 6% until 2015. It is just ugly: Only five years after the recession began, there are few reasonable scenarios in which we will see a normal, healthy unemployment rate within the next two years. And the longer people remain out of work, the harder it is for them to re-enter the labor market, making this mess all the more dire.

No single employment report is all that useful, as the margin of error (plus or minus 100,000) creates noisy swings, and revisions can change the direction of reports entirely. What matters are broad trends. And one trend that has developed in recent years is becoming increasingly persuasive: Jobs growth is great early and late in the year but poor in the middle:

Source: Bureau of Labor Statistics.

The majority of jobs growth since 2010 has come either between January and March or between September and December.

Why?

Three years of data isn't enough to be sure this isn't just a fluke, but it's likely that the seasonal adjustments the Bureau of Labor Statistics uses were thrown out of whack as hiring patterns shifted after the financial crisis. Over the course of a year, these adjustments should make no difference -- jobs numbers that are over-reported one month will be under-reported in other months. But it highlights how important it is to take monthly reports with a grain of salt, paying more attention to long averages than monthly swings. To paraphrase Derek Thompson of the Atlantic, you can sum up all 36 employment reports of the last three years in one line: Things got better, slowly. Everything else was noise.

A few other trends stick out:

A lot of the new jobs created over the last three years have been in low-wage industries like food service (which is at an all-time high) and temporary help. Millions of Americans are out of work. Millions more are working part-time. And millions upon millions more are working for a paycheck that barely gets them by.

Private payrolls have risen by 4.7 million since 2010, while government employment has declined by 480,000. This is the opposite of the last recession: From 2002 to 2004, government employment increased by 201,000, and private employment declined by 316,000. Falling government employment, most of which has occurred at the state and local level, explains a lot about why the labor market is slower to rebound than in past recessions.

New housing construction is beginning to rebound in a big way, up 34% in the last year. Pay close attention to that; it could be the biggest driver of employment growth over the next few years. As Warren Buffett said last year: "We will come back big-time on employment when residential construction comes back. You will be surprised, in my view, how fast employment changes when that happens."